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2019 (5) TMI 1008 - HC - Income TaxExpenditure on airfare booked under technical guidance fee - capital expenditure OR revenue expenditure - HELD THAT - Questions have already been answered against the Revenue by the order passed by this Court on 2nd August 2017 in the Revenue s appeal in the Assessee s own case for AY 2009-10 in The Commissions of Income Tax LTU v. Honda Cars India Ltd. 2018 (5) TMI 1875 - DELHI HIGH COURT Addition u/s 14A - HELD THAT - The issue stands answered against the Revenue by the decision in Cheminvest Ltd. v. CIT 2015 (9) TMI 238 - DELHI HIGH COURT Royalty and lump sum fee paid by the assessee - capital expenditure OR revenue expenditure as claimed by the Assessee - HELD THAT - ITAT has rightly drawn a distinction between the royalty payments made by the Assessee to the principal during its formative years and those made in subsequent years when the Assessee was fully operational. While the former payments were characterised as capital expenditure, the latter could not and were rightly treated as revenue expenditure. For the earlier AY 2008-09 this Court 2018 (5) TMI 1875 - DELHI HIGH COURT has remanded the matter to the ITAT for a fresh determination of the above issue, it cannot be said that for the present AY i.e. 2010-11, the ITAT has not given cogent reasons for treating the expenditure as a revenue expenditure.
Issues:
1. Treatment of expenditure on airfare as capital or revenue expenditure 2. Disallowance of entry tax claimed as deductible under section 43B 3. Treatment of software expenses as capital or revenue expenditure 4. Addition made under Section 14A of the Act 5. Treatment of royalty and lump sum fee paid as capital or revenue expenditure Analysis: 1. The High Court considered the Revenue's appeal against the ITAT's order for AY 2010-11. The first three issues regarding the treatment of airfare expenditure, entry tax disallowance, and software expenses were already decided against the Revenue in a previous case for AY 2009-10. The Court referred to the relevant judgments to support its decision. 2. The Court addressed the addition made under Section 14A of the Act, citing a previous decision in Cheminvest Ltd. v. CIT. The issue was resolved against the Revenue based on the precedent set by the mentioned case law. 3. The main issue in question was whether the ITAT erred in deleting the addition of a significant amount made by the Assessing officer regarding royalty and lump sum fee paid by the assessee. The Revenue argued for remanding the issue to the ITAT for further review, citing lack of sufficient reasoning in the ITAT's decision. However, the Court found that the ITAT had provided detailed reasons for treating the expenditure as revenue expenditure. 4. The Court examined the arguments presented by both parties regarding the royalty payments made by the assessee. The ITAT's decision was supported by the distinction between payments made during the formative years and those made when the assessee was fully operational. The Court also considered a clarificatory order by the Supreme Court regarding depreciation on royalty payments. 5. Ultimately, the Court concluded that the ITAT had appropriately distinguished between capital and revenue expenditure in the case of royalty payments. It was determined that no substantial question of law arose for further consideration, leading to the dismissal of the appeal and the pending application. By providing detailed reasoning and referencing relevant case law, the High Court's judgment thoroughly analyzed each issue raised by the Revenue, ultimately upholding the ITAT's decision regarding the treatment of the expenditure on royalty and lump sum fee paid by the assessee.
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